1. Phantom Stock Option Plans

2. What are the Objectives of a PSOP?  Managers that will act like owners  Managers that are loyal  Head start on an MBO?

3. PSOPs are not “Qualified Plans”  Qualified Plans are governed under ERISA  Qualified Plans are tax advantaged  Qualified Plans require formal valuations  Qualified Plans require annual filings  Qualified Plans prohibit discrimination  Qualified Plans are funded

4. Phantom Stock Ownership Plan  Binding Agreement  In setting up a PSOP you execute a formal and binding agreement with employees.  Required to convince employees you are serious  Thinking through terms and conditions is critical  PSOP Existence and effect must be disclosed whenever your financial statements are shared with outside parties, particularly when the purpose of sharing the information is reliance.

5. PSOPs provide legal rights  Equity  Appreciation in equity [SARs]  Income  Most common:  Equity with a share of income provided through incentive compensation programs.

6. Who participates?  Small number of key executives and managers.  How are participants awarded their shares?  Past Service Credits  Position  Performance  How are participants vested in their shares?  Immediate  Passage of time  Phased

7. Valuation depends on circumstances!  Termination with cause - forfeiture  Termination - forfeiture, net book value  Resignation - forfeiture, net book value, market-based formula  Retirement - market-based formula  Plan Termination - market-based formula  Sale of the company – market value

8. Pay-out  Payments generally made over several years.  PSOPs are subject to the desires of the Board of Directors  Modification  Termination  New plans